Credit Suisse re­vives Kra­ton poly­mers hung bond

A group of banks led by Credit Suisse re­vived a hung bond for Kra­ton Poly­mers on Wed­nes­day, un­der­scor­ing im­prov­ing sen­ti­ment in a junk pri­mary mar­ket that has been closed to many cred­its this year.

The US$440m April 2023 bond, which car­ries a coupon of 10.5pc, was for­mally is­sued by Kra­ton in Jan­uary at a yield of 11.25pc but was en­tirely bought by its un­der­writ­ers af­ter they failed to find buy­ers in a de­te­ri­o­rat­ing mar­ket.

This time around leads are ex­pected to sell the deal at even juicier yields, as low com­mod­ity prices and high re­fi­nanc­ing risks keep the chem­i­cal sec­tor un­der pres­sure while in­vestors have been de­mand­ing tougher covenants on high-yield pa­per.

While of­fi­cial price talk has yet to emerge, two port­fo­lio man­agers fol­low­ing the trade told IFR that pre­lim­i­nary dis­cus­sions re­volved around a price range of 88-90, or 12.514pc on a yield ba­sis.

Sour­ing ap­petite for high­yield cred­its since late 2015 had put banks who had com­mit­ted fi­nanc­ing for pend­ing ac­qui­si­tions be­tween a rock and a hard place, forc­ing many to fund deals us­ing their own bal­ance sheets.

But since mid-Fe­bru­ary strong in­flows into US high­yield funds and de­mand for what some had thought was an over­sold as­set class fu­eled a mini rally in junk names.

The av­er­age spread on junk bonds tracked by Bank of Amer­ica Mer­rill Lynch's US high-yield in­dex, for ex­am­ple, com­pressed from a year-to­date high of 2,066bp on Fe­bru­ary 11 to 1,775bp on Tues­day.

Kra­ton marks the first Triple C rated credit to dip its toes in the mar­kets this month fol­low­ing a US$1.73bn bond sale from Sol­era in late Fe­bru­ary.

The deal is part of a big­ger debt pack­age that Kra­ton raised to fi­nance its US$1.37bn ac­qui­si­tion of Ari­zona Chem­i­cal, which closed on Jan­uary 6, and the re­demp­tion of its 6.75pc 2019s.

Un­der­writ­ers were forced to fund a US$1.35bn term loan that was also part of the fi­nanc­ing in Jan­uary, though they man­aged to sell US$953m of that in midFe­bru­ary at a dis­count of 90 cents to the dol­lar.

Kra­ton paid down an­other US$75m of that loan through as­set sales, while banks were able to sell the vast ma­jor­ity of the re­main­der on Mon­day at a price of slightly above 90 cents to the dol­lar, a source close to the deal told IFR on Wed­nes­day.

The term loan was trad­ing at a price of 91.0-91.5 in the sec­ondary mar­ket on Wed­nes­day, the source said. The bond, which is rated B3/CCC+, is ex­pected to be sold to in­vestors on Wed­nes­day af­ter­noon, ac­cord­ing to a mes­sage sent to the mar­ket by lead man­ager Credit Suisse and seen by IFR.